A MIP (Mortgage Insurance Premium) protects the lender regardless of the amount of the down payment. If the borrower pays 10% or more for their down payment, MIP can be canceled after 11 years. MIP consists of an upfront premium with a rate of 1.75% of the loan and an annual premium with a rate of 0.85%. Annual premiums tend to be lower for loan terms of 15 years or less and lower loan-to-value ratios.

Private Mortgage Insurance provides protection for conventional loans and is a guideline set by Freddie Mac and Fannie Mae and the majority of investors where the down payment is less than 20%. PMI is automatically removed once the loan balance has fallen to 78%.

Private Mortgage Insurance offers plenty of flexibility as it can be paid upfront at closing or it can be financed on a monthly basis. The PMI rate is dependent on the size of the loan and the loan-to-value ratio; typically the rates are in the range of 0.5% to 2% of the loan.

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